Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 164428
Dear [Client]:
Subject: GST/HST INTERPRETATION
Status of partners of a partnership that is a "listed financial institution"
Thank you for your […][correspondence], concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the partners of a partnership. We apologize for the delay in providing our response.
The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 14% in Prince Edward Island and 15% in Nova Scotia. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
We understand the following:
ABC Partnership provides its services to a mortgage investment corporation that lends money to mortgagors using residential real estate as security. ABC Partnership will perform underwriting, renewal, enforcement and repayment functions in providing its services to the mortgage investment corporation.
All of the partners of ABC Partnership are corporations. None of the corporate partners (the Partnercos) hold assets other than their respective interest in the partnership and they do not carry on any activities other than activities that allow them to earn their respective shares of the income of ABC Partnership. The Partnercos do not supply property or services to ABC Partnership otherwise than in the course of the partnership’s activities. The only income of the Partnercos is derived from their interest in ABC Partnership.
INTERPRETATION REQUESTED
You would like to know if the Partnercos are also considered to be listed financial institutions where ABC Partnership is a listed financial institution. You would also like to know if underwriting, renewal, enforcement and repayment functions performed by ABC Partnership are financial services.
INTERPRETATION GIVEN
Determining whether a person is a listed financial institution
As requested, the following information is provided based on the assumption that ABC Partnership is a listed financial institution pursuant to subsection 123(1) and paragraph 149(1)(a).
For GST/HST purposes, the term “person” is defined under subsection 123(1), in part, to mean an individual, a partnership and a corporation.
For GST/HST purposes, under subsection 272.1(1), anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership's activities and not to have been done by the person.
The determination of whether a particular Partnerco does something as a member of ABC Partnership for purposes of subsection 272.1(1) depends on the applicable provincial partnership law and the facts of the particular situation. Please refer to GST/HST Policy Statement P-244, Partnerships – Application of subsection 272.1(1) of the Excise Tax Act, for more information, such as the factors that must be considered. Factors to consider include, but are not limited to, the following:
• the terms of the partnership agreement;
• the nature of the action taken by the partner; and
• the partner's ordinary course of conduct.
The fact that ABC Partnership is a listed financial institution does not mean that the Partnercos will automatically be considered to be listed financial institutions. To determine whether or not a particular Partnerco is a listed financial institution pursuant to subsection 123(1) it must be determined whether the particular Partnerco is referred to in paragraph 149(1)(a). Please refer to GST/HST Memorandum 17.6, Definition of “Listed Financial Institution” for more information.
In making this determination, it is important to note that those activities of a particular Partnerco that are done by the particular Partnerco as a member of ABC Partnership such that subsection 272.1(1) deems those activities to be done by ABC Partnership should not be taken into consideration when determining whether a particular Partnerco is a listed financial institution. Also, ownership of an interest in ABC Partnership which is a financial instrument, under subsection 123(1), and the receipt of money in respect of that interest in ABC Partnership would not, alone, make a particular Partnerco a listed financial institution.
We note that you have indicated that the jurisprudence in connection with the Income Tax Act has held that partners of a partnership are considered to carry on the business of the partnership; however, under the ETA, rules pertaining to the activities of partnerships are provided under section 272.1 and therefore, reference must be made to those provisions as discussed above to determine whether a partner acts on account of a partnership or on its own account.
Determining whether a service is an exempt supply of a financial service
Based on the information provided, we are not in a position to issue a ruling on whether the underwriting, the renewal, the enforcement and the repayment functions performed by ABC Partnership are financial services. We are, however, pleased to provide a general explanation of certain provisions of the ETA that should be considered to determine if a service is a financial service.
A "financial service" means anything that is described in any of paragraphs (a) to (m) of the definition of financial service in subsection 123(1) and not excluded by any of paragraphs (n) to (t) of that same definition. Paragraph (d) of the definition of financial service, refers to the issue, granting and transfer of ownership or repayment of a financial instrument. A "financial instrument" is defined in subsection 123(1) and includes a "debt security" which, in turn, is defined under that provision to mean a right to be paid money such as a right to be paid money under a mortgage loan agreement. Paragraph (g) of the definition of financial service refers to the making of any advance, the granting of any credit or the lending of money.
Paragraph (l) of the definition of financial service refers to the arranging for a service that is referred to in any of paragraphs (a) to (i) and not referred to in any of paragraphs (n) to (t). For example, generally, a mortgage broker provides an “arranging for” service referred to in paragraph (l) when it acts as an intermediary between a lender and a loan applicant to assist the loan applicant in obtaining a mortgage loan from the lender.
The definition of financial service states, in part, that is does not include a service referred to in any of the following paragraphs:
(r.2) a debt collection service, rendered under an agreement between a person agreeing to provide, or arranging for, the service and a particular person other than the debtor, in respect of all or part of a debt, including a service of attempting to collect, arranging for the collection of, negotiating the payment of, or realizing or attempting to realize on any security given for, the debt, but does not include a service that consists solely of accepting from a person (other than the particular person) a payment of all or part of an account unless
(i) under the terms of the agreement the person rendering the service may attempt to collect all or part of the account or may realize or attempt to realize on any security given for the account, or
(ii) the principal business of the person rendering the service is the collection of debt,
(r.3) a service (other than a prescribed service) of managing credit that is in respect of credit cards, charge cards, credit accounts, charge accounts, loan accounts or accounts in respect of any advance and is provided to a person granting, or potentially granting, credit in respect of those cards or accounts, including a service provided to the person of
(i) checking, evaluating or authorizing credit,
(ii) making decisions on behalf of the person in relation to a grant, or an application for a grant, of credit,
(iii) creating or maintaining records for the person in relation to a grant, or an application for a grant, of credit or in relation to the cards or accounts, or
(iv) monitoring another person's payment record or dealing with payments made, or to be made, by the other person, and
(r.4) a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l), or that is provided in conjunction with a service referred to in any of those paragraphs, and that is
(i) a service of collecting, collating or providing information, or
(ii) a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service.
Currently, no services are prescribed or proposed to be prescribed for purposes of paragraphs (r.3) and (r.4).
Where an agreement provides for the provision of a number of services or property and services, it must first be determined whether a single supply or multiple supplies are being provided under the agreement. This distinction is important in cases where a combination of services and or property is supplied by a person under an agreement, some of which would be taxable and some of which would be exempt if supplied separately. In this type of situation it is a question of fact whether the person is making a single supply or multiple supplies. GST/HST Policy Statement P--077R2, Single and Multiple Supplies, provides additional information on determining whether a single supply or multiple supplies are being provided.
If it is determined that multiple supplies are being provided by a person the possible application of sections 138 and 139 should be considered.
If it is determined that a single supply is being provided, then the predominant element of that supply must be established to determine the nature of the supply. If the predominant element of the single supply is determined to be a financial service, then the supply as a whole will be considered a financial service. This determination will be generally based on written agreements, between the person providing the service and the person’s client, detailing the actions, responsibilities and obligations of the person in connection with the supply.
The term “arranging for” is generally intended to include intermediation activities that are normally performed by financial intermediaries described in subparagraph 149(1)(a)(iii). In determining if an intermediary's service is included in paragraph (l), all the facts surrounding the transaction, including the following factors, must be considered:
• the degree of direct involvement and effort of the person in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the time expended by the intermediary in the provision of a financial service referred to in any of paragraphs (a) to (i);
• the degree of reliance of either or both the supplier and the recipient on the intermediary in the course of providing a financial service referred to in any of paragraphs (a) to (i);
• the intention of the intermediary to effect a supply of a financial service referred to in any of paragraphs (a) to (i); and
• the normal activities of an intermediary in a given industry (including whether the intermediary is engaged in a business of providing financial services).
Where an intermediary provides a number of services including services described by any of paragraphs (n) to (t) as part of an agreement to arrange for a supply of a financial service, the single supply of the bundled services may be a supply of a financial service of arranging for, depending on the facts surrounding the transaction, the above listed factors, and the predominant element of the supply.
Supplies of financial services are exempt under Part VII of Schedule V unless they are specifically zero-rated under Part IX of Schedule VI.
Please refer to GST/HST Technical Information Bulletin (TIB) B-105, Changes to the Definition of Financial Service for more information on the meaning of the term “arranging for” in paragraph (l) of the definition of financial service. Example 9 of TIB B-105 illustrates a situation which may be of assistance when determining the GST/HST status of the supply provided by a mortgage broker.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretations given in this letter, including any additional information, are not rulings and do not bind the Canada Revenue Agency (CRA) with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretations or the additional information provided herein.
The CRA only issues GST/HST rulings on specific provisions of the legislation as they relate to a clearly defined fact situation of a particular person. If you would like to request a ruling, you must submit all relevant facts (detailed descriptions of services provided, copies of any relevant supporting agreements or documents etc.) concerning the issues in question. Please refer to GST/HST Memorandum 1.4 for more information on requesting a ruling.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-952-9220. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Constantin Constant
Listed Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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